2010-11-16 10:03

BEIJING - Development of Chinese private equity (PE) funds has topped the list in Asia in terms of scale and speed of introduction to the market, said Liu Lefei, rotating chairman of Beijing Private Equity Association.

Liu, also chairman and chief executive of Citic Private Equity Funds Management Co that leads China's biggest yuan denominated-fund - the 9-billion-yuan ($1.36 billion) Mianyang Industrial Fund, said in the past seven years, PE funds in China have achieved a compounded growth rate of 40 percent every year, far exceeding other Asian countries.

Opportunities for further development is huge, he said, as China's PE sector penetration rate at present is low, a mere 0.1 percent of the country's GDP.

The PE penetration rate in the United States is at 0.8 percent, and 2 percent in Britain, he said this at the 2010 Global PE Beijing Forum held on Sunday.

Opportunities abound for the PE industry when China's GDP maintains a rapid growth rate along with higher penetration rate, said Liu.

McKinsey & Company, a global consulting firm, estimated that China's private equity fund penetration rate may reach between 0.4 and 0.5 percent by 2015, with a total investment demand of more than 200 billion yuan within the industry.

As China's pension funds step up its investments, the PE funds are seen as favorites to attract investments. Thanks to a regulation announced in September, which allows domestic insurance companies to invest in PE funds, the PE sector is certainly seeing more money supply.

In the first nine months, China's total fund raising in the PE sector reached $28.4 billion. About 144 new funds were established during the same period, in which 90 percent are yuan-denominated funds, according to latest reports by Zero2IPO, a leading Chinese venture capital research and advisory company.

This year alone, 128 Chinese companies that were backed by PEs went for IPO, gaining as much as $20 billion from the open market, the Zero2IPO reports said.

"Among those 128 companies, 98 are listed in the domestic stock markets, and institutional investors (PE funds) are repaid by more than ten times," said Liu of Citic Private Equity Funds Management Co.

Wang Zhongmin, deputy director-general of the National Council for Social Security Fund, said his fund has already invested in eight private equity funds, with an investment commitment of 11.7 billion yuan.

The National Social Security Fund, with a total asset of 800 billion yuan, is allowed to invest up to 10 percent of its asset to private equity funds.

"The social security fund receives probably 100 billion yuan as new asset annually. It means, in addition to the 80 billion yuan that we can now earmark for investing in PE funds, there is another 10 billion yuan to add into our investment portfolio every year," Wang said.

"We pay a lot of attention to China's PE industry as our fund wants to grow together with it."

Chen Wenhui, assistant chairman of China Insurance Regulatory Commission, said by the end of September, the total asset of Chinese insurance companies reached 4.8 trillion yuan. According to the Chinese regulation, insurance companies are permitted to invest no more than five percent of its total asset in PE funds.